Profit margins are one of the simplest numbers in business and one of the most powerful.

You can be busy, have sales coming in, and still feel like there’s never anything left at the end of the month. Profit margin helps you see what’s really happening: how much of your income you actually keep once costs are taken care of.

In this blog, we’ll cover what profit margins are, the main types to know, a simple example (with real numbers), and practical ways to improve your margins without making your business feel harder than it needs to.

What is a profit margin?

A profit margin tells you how much profit you make from your income, shown as a percentage.

It answers the question:

• For every £1 I bring in, how many pence do I keep? So if your profit margin is 20%, you keep 20p of every £1 after costs.

Why it matters:

• It shows whether your pricing is working
• It highlights rising costs early
• It helps you plan (pay yourself, save, invest, hire)
• It stops “growth” from turning into “more work for the same money”

The key types of profit margin (and what they tell you)

You’ll usually hear three types. You don’t need to obsess over all of them, but it’s helpful to know what each one means.

1) Gross profit margin

This looks at how profitable your sales are before overheads. It’s based on:

• Income minus direct costs (costs directly linked to delivering what you sell)

Direct costs might include:

• Stock/materials
• Packaging and delivery
• Subcontractors/freelancers used to deliver the work
• Payment processing fees (depending on how you track them)

Gross margin is a great “first check”: Are you making enough on what you sell in the first place?

2) Operating profit margin

This includes overheads (your running costs) as well as direct costs. Overheads might include:

• Software subscriptions
• Insurance
• Marketing
• Office/home office costs
• Professional fees
• Admin support

Operating margin shows how profitable the business is once it’s running day-to-day.

3) Net profit margin

This is your bottom line: what’s left after everything. It can include things like:

• Tax
• Interest
• One-off costs

Net margin is often what people mean when they say “profit margin” because it reflects what you truly keep.

A simple profit margin example (with numbers)

Let’s say your business brings in £10,000 in a month.

Your costs look like this:

• Direct costs (materials, delivery, freelancers): £3,000
• Overheads (software, insurance, marketing, etc.): £4,500

That means your profit is:

• £10,000 − £3,000 − £4,500 = £2,500

Your profit margin is:

• £2,500 ÷ £10,000 = 0.25 (25%)

So you’re keeping 25p of every £1.

Now imagine your costs creep up slightly—maybe a supplier increases prices, and you add a couple of subscriptions:

• Direct costs increase to £3,400
• Overheads increase to £4,800

Profit becomes:

• £10,000 − £3,400 − £4,800 = £1,800

New profit margin:

• £1,800 ÷ £10,000 = 18%

Same sales. Lower margin. Less breathing room.

That’s why margin is such a useful number: it shows what’s happening behind the scenes.

What’s a “good” profit margin?

It depends on your industry, your business model, and your goals. Instead of chasing a perfect percentage, aim for a margin that supports:

• Paying yourself properly
• Covering tax and future costs
• Building a buffer for quieter months
• Investing in growth (training, tools, support)
• Reducing stress and last-minute firefighting

A “good” margin is one that makes your business sustainable.

Why profit margins shrink (even when sales rise)

Profit margins often drop when:

• Costs rise quietly (subscriptions, suppliers, utilities)
• You discount to win work, then never bring prices back up
• You underprice because you’re comparing yourself to the wrong competitors
• Scope creep becomes normal (“just one more thing” adds up)
• You take on work that’s time-heavy or awkward to deliver
• You grow quickly and add overheads before income stabilises

The upside: most of these are fixable once you spot them.

How to improve your profit margins (practical steps)

1) Review pricing with your time in mind

A common margin issue isn’t that you’re doing “bad business”, it’s that you’re charging yesterday’s prices for today’s costs.

Try this:

• Review pricing at least once a year
• Check how long work actually takes (not how long you wish it took)
• Consider packaging services so you’re not constantly doing extras for free

If raising prices feels daunting, start with new clients first, then plan a clear, fair increase for existing clients with notice.

2) Do a quick “cost creep” audit

Small monthly costs can quietly drain profit. Once a quarter, list:

• Every subscription
• Every regular supplier cost
• Any fees (payment processors, platforms, memberships)

Then ask:

• Do I still use this?
• Is there overlap with another tool?
• Can I downgrade?
• Is there a better-value supplier?

You don’t need to cut everything; just make sure your costs are intentional.

3) Focus on the work that pays best

Not all income is equal. Two clients might both pay £500/month, but one takes 2 hours and the other takes 8 hours. Same revenue, completely different margin.

If you track time (even roughly), you can spot:

• Your most profitable services
• The clients/projects that take longer than they should
• Where scope creep is happening

Then you can tighten boundaries, reprice, or stop offering low-margin work.

4) Reduce the hidden cost of time

Time is a cost, even if it doesn’t show up as a bill. Look for tasks you repeat and make them easier:

• Create templates (emails, proposals, onboarding)
• Batch similar tasks (admin, content, invoicing)
• Use simple automation (invoice reminders, booking confirmations)
• Delegate where it makes sense

Even saving 2–3 hours a week can improve your margin without changing your prices.

5) Protect your margin with better cash flow habits

Late payments and messy cash flow can push you into short-term decisions like discounting or taking on work that isn’t a great fit.

Margin-friendly habits:

• Invoice promptly
• Set clear payment terms
• Use automated reminders
• Consider upfront payments or deposits
• Review overdue invoices monthly

6) Check your margins regularly (not just at year-end)

You don’t need to be “good with numbers” to keep an eye on margins. A simple monthly check-in is enough:

• Total income
• Total costs
• Profit in £
• Profit margin %
• Any big changes vs last month

If something dips, you can act early, before it becomes a bigger problem.

Quick checklist: 5 margin wins to try this month



• Put 30 minutes in the diary for a subscription/cost review
• Identify your top 1–2 most profitable services (and promote those)
• Track your time for one week to spot where profit leaks
• Review one price that hasn’t changed in 12+ months
• Tighten scope on one recurring piece of work (and document what’s included)

Better profit margins don’t just mean “more money.” They mean more stability, more options, and more breathing room.

If you’d like help understanding what your margins are telling you and what to tweak to improve them, Bluebells Bookkeeping can help you get clarity and a plan that fits your business.